Abuse of POWER

Many home­buy­ers are at the mercy of de­vel­op­ers, be­ing forced to sign agree­ments that go against their in­ter­ests ‘ABU­SIVE’ CLAUSES THAT GO AGAINST HOME­BUY­ERS

HT Estates - - NEWS - Jee­van Prakash Sharma

Im­pressed by a developer’s prom­ises, Kushal Sen, a Delhi-based busi­ness­man, paid ₹ 15 lakh as book­ing amount which came to 10% of the cost of a 3BHK flat in a group hous­ing pro­ject in Gur­gaon. After al­most a year when the developer called him to sign a builder-buyer agree­ment, Sen ob­jected to some un­just clauses in the agree­ment and quit the pro­ject.

“When I asked the developer to re­turn the book­ing money, he The al­lot­tee shall have no ob­jec­tion if the developer gives on lease or hires any part of the top roof/terraces above the top floor for in­stal­la­tion and op­er­a­tion of an­ten­nae, satel­lite dishes, com­mu­ni­ca­tion tow­ers etc

If the developer is able to get ad­di­tional/pur­chasable FAR or it be­comes pos­si­ble to raise fur­ther con­struc­tion then ad­di­tional con­struc­tion shall be made on the al­ready ap­proved tow­ers/blocks The size of the flat given in plans is ten­ta­tive and can be mod­i­fied due to tech­ni­cal and other rea­sons. The amount paid by the al­lot­tee to the com­pany to the ex­tent of 15% of the ba­sic price of the unit shall be for­feited in case of non-ful­fill­ment of the terms of al­lot­ment and

re­fused. The strangest clause in the agree­ment was the one which said, “The pro­moter will have the op­tion to ei­ther ac­cept or re­ject the signed builder­buyer agree­ment within 30 days after re­ceiv­ing the same from the in­tend­ing al­lot­tee(s),” says Sen.

Shar­ing his ex­pe­ri­ence with friends later, he came to know that many of them had in­vested in res­i­den­tial projects in Delhi NCR and signed agree­ments heav­ily tilted in favour of builders – “with the most abu­sive of clauses against home­buy­ers,” Sen adds. shall not be re­funded in any case what­so­ever

In or­der to pro­vide nec­es­sary main­te­nance ser­vices, the developer may, upon the com­ple­tion of the com­plex, hand over the main­te­nance of the com­plex to any in­di­vid­ual, firm, body cor­po­rate, as­so­ci­a­tion etc

If the in­tend­ing al­lot­tee(s) fails to ex­e­cute and de­liver to the pro­moter the builder-buyer agree­ment in its orig­i­nal form duly signed within ten days from the date of dis­patch by reg­is­tered post by the pro­moter, then the ap­pli­ca­tion of the in­tend­ing al­lot­tee shall be treated as can­celled and the earnest money paid by the in­tend­ing al­lot­tee shall stand for­feited with­out any notice or re­minders

Many home­buy­ers say that in ev­ery real es­tate deal, builder­buyer agree­ments are signed al­most a year after the book­ing amount is paid for an apart­ment. By that time the al­lot­tees, hav­ing al­ready in­vested in the pro­ject, have no op­tion but to fol­low the builders’ dic­tates.

This is­sue has been promi­nently ad­dressed in the case of Be­laire Own­ers’ As­so­ci­a­tion vs builder DLF Ltd, in which the Com­pe­ti­tion Com­mis­sion of In­dia had held that cer­tain clauses in the agree­ment gave DLF the sole dis­cre­tion to make changes in zon­ing plans, us­age pat­tern, su­per area, car­pet area and for al­ter­ation of struc­ture. Even if the lo­ca­tion of the apart­ment changed and if the buyer de­manded a re­fund, no in­ter­est was to be paid by the builder.

“The buy­ers had no rights to raise ob­jec­tions. Even if they had paid the full amount, the builder could cre­ate mort­gage on the prop­erty of the buy­ers for rais­ing finance for its own pur­pose,” the CCI or­der had said. “DLF Ltd in­serted such clauses which made exit next to im­pos­si­ble for buy­ers. In case of de­lay by the builder, DLF Ltd was to pay com­pen­sa­tion of ₹ 5 per sq feet per month, equiv­a­lent to about 1% per an­num in­ter­est, while in case of de­lay in pay­ment by the buyer, the in­ter­est charged was 15% per an­num for the first 90 days and 18% there­after,” CCI had held.

Many home­buy­ers in Ghazi­abad, Noida, Greater Noida and Gur­gaon com­plain of sim­i­lar abu­sive clauses in the agree­ments due to the de­vel­op­ers’ dom­i­nant po­si­tion. The most com­mon of all ar­bi­trary clauses is the one which gives the developer the right to get ad­di­tional floor area ra­tio (FAR) from the de­vel­op­ment author­ity and add more floors and tow­ers to the pro­ject at any time after the launch. The developer in­serts this clause in the agree­ment just to evade the

huge in­ter­est to be paid on the re­main­ing amount that is ly­ing idle for which the cus­tomer may be forced to pay, say con­sul­tants.

“The gov­ern­ment has said that all con­struc­tion- linked ex­penses should be paid out of the es­crow ac­count. It is, there­fore, not clear whether the in­ter­est ex­penses (which are also part of con­struc­tion cost) and land cost are also part of this 50% limit or not. A clar­i­fi­ca­tion is re­quired on that front,” says Neeraj Bansal, part­ner, KPMG in In­dia.

For projects in far-flung ar­eas where the land cost is much less, a higher amount should be kept aside in the es­crow. “The gov­ern­ment needs to take one more step, they should de­fine what an ur­ban lo­ca­tion is for which 50% amount should be kept aside in an es­crow ac­count and de­fine a sec­ond layer of cities where the es­crow com­po­nent should be 70% or even higher so that the developer is forced the com­plete the pro­ject on time,” says Bansal.

So, how will this change im­pact the real es­tate sec­tor? The im­pact of this in the long run will be that there will be an as­sured sup­ply in the mar­ket which in turn will im­pact prices of units.

“This will in­crease avail­able liq­uid­ity with the builders. Con­sid­er­ing the fac­tors such as high in­ter­est rates on home loans, dif­fi­culty in se­cur­ing bank credit for projects and over­all dip in private equity in­vest­ment sen­ti­ment, the move to re­duce the es­crow amount limit will usher in liq­uid­ity for both hous­ing and com­mer­cial projects,” says Sachin Sand­hir, global managing director, emerg­ing business and MD, South Asia, RICS. pro­vi­sions of the UP Apart­ment Act which makes it manda­tory for him to take the con­sent of home­buy­ers for plan changes after the pro­ject launch.

An Al­la­habad High Court rul­ing has made life eas­ier for home­buy­ers. In the case of Ab­hi­nav Jain vs the state of UP, the HC made two things very clear: First, if a builder al­lots apart­ments to in­tend­ing pur­chasers in an under- con­struc­tion group hous­ing pro­ject, he has to take the con­sent of all the al­lot­tees be­fore he plans any changes in the orig­i­nal plan. Sec­ond, if the developer has al­ready given pos­ses­sion in the pro­ject, let’s say he has com­pleted 60% of the pro­ject and given flat ownership to the al­lot­tees, he has to take the con­sent of a ma­jor­ity of the apart­ment own­ers. Ben­e­fits from the FAR have to also be equally di­vided among all the own­ers.

How­ever, t his cl ause i s be­ing bla­tantly abused by all the de­vel­op­ers in Noida and Ghazi­abad. “De­vel­op­ers make the home­buy­ers sign an agree-

ment in ad­vance to con­vince the de­vel­op­ment author­ity that they (de­vel­op­ers) have the con­sent of all the al­lot­tees and that they should be given the pur­chasable FAR,” says In­dr­ish Gupta, founder mem­ber of the Noida Ex­ten­sion Flat Own­ers Wel­fare As­so­ci­a­tion. Re­cently, the Noida Author­ity gave pur­chasable FAR to 17 de­vel­op­ers on th­ese grounds. Once the de­vel­op­ers get pur­chasable FAR, they com­pletely change the lay­out plan of the pro­ject. It’s a very se­ri­ous is­sue, he adds.

Real es­tate ex­perts say that the de­vel­op­ment au­thor­i­ties of re­spec­tive ar­eas should in­volve all the stake­hold­ers to de­sign a model builder-buyer agree­ment.

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